Journal Entry for Unearned Revenue

Unearned revenue refers to that income or revenue which the company has received in advance. It implies that company has received the payment for a work which company has not done but will do in future. Example of unearned revenue is the advance received by a company for a contract on which the work has not started. Given below is the journal entry which is passed for recording unearned revenue into the books of accounts of a company –

Cash account Dr

To Unearned Revenue account

(When the company receives unearned revenue, this journal entry will be passed)

After making the above journal entry another journal entry will be made at the end of period for adjustment of unearned revenue in the books of the company which will be –

Unearned Revenue account Dr

To Revenue account

(This entry is passed for adjustment purpose, by crediting the relevant revenue account when it becomes due and transferring balance to the unearned revenue account under liabilities side of balance sheet.)

5 comments… add one
  • Ramesh

    Can you please tell me about revenue journal entry ?

    • Vinish

      A revenue journal entry is one which is passed in order to record income that a company receives from its normal business activities, which is selling goods to customers and therefore for example if company has sold goods for cash then revenue journal entry for such transaction would be
      Cash account Dr
      To Sales account
      If company has sold goods on credit than revenue journal entry for such transaction would be
      Account receivable account Dr
      To Sales Account

  • Arun Janakiraman

    The following entry also will happen in deferred revenue

    Step No. 1 – When we received the Amount as Advance
    Dr. Cash/Bank/Customer
    Cr. Deferred Revenue/Unearned Revenue

    Step No. 2 – We need to recognize the Revenue but park it as unbilled Revenue
    Cr. Sales/Income
    Dr. Unbilled Revenue

    Step No. 3 – We have to adjust the above unbilled against deferred revenue
    Cr. Unbilled Revenue
    Dr. Deferred Revenue/Unearned Revenue

  • Edward A. Liskiewicz

    Unearned revenue refers to revenue received in advance. Since a future obligation exists on the part of the company to perform the services for which the advance payment was received, unearned revenue constitutes a liability. (Although a liability is usually thought of as an obligation requiring a future monetary payment, it can relate to the rendering of future services.) When the services are performed revenue is then earned and the following journal entry is required:

    Unearned Revenue…DR.

    EXAMPLE 1 Unearned Professional Fees
    On January 1, a client made an advance payment of $1,000 for professional fees to be rendered over the next four months. After performance of the first month’s services, the liability Unearned Professional Fee Income would be decreased and hence debited for $250 and the revenue account Professional Fee Income would be credited. The necessary journal entries are:

    Jan. 1 Cash 1,000
    Unearned Professional Fee Income 1,000

    31 Unearned Professional Fee Income 250
    Professional Fee Income 250

    EXAMPLE 5 Unearned Rental Income
    On January 1, a landlord receives $500 from a tenant as an advance for the month’s rent. The journal entries are:

    Jan. 1 Cash 500
    Unearned Rental Income 500

    31 Unearned Rental Income 500
    Rental Income 500

  • catherine shapiro

    how to record the unearned revenue in Quickbooks? If I receive payments from clients as advance payments to their order, it will automatically go to accounts receivables and make a credit balance to their account. So how can I make this payment go to Unearned Revenue account as liability. Do I need to re-categorize my clients account or what to do. I am confused.

Leave a Comment